The proper allocation of revenues from a county sewer district: Funding the county sanitary engineering department

The Ohio Attorney General’s Office recently issued an opinion determining that a board of county commissioners has the authority to create a fund in the county treasury for the sole purpose of using revenue generated by a county’s sewer district to pay the expenses of a county sanitary engineering department. 2016 Op. Att’y Gen. No. 2016-009.

As a preliminary matter, the attorney general examined the statutory authority behind a board of county commissioners’ authority in connection with sewer districts. Section 6117.01(B)(1) allows the board to establish and maintain one or more sewer districts within its county and also provides that a county can operate any necessary and appropriate sanitary and drainage facilities. Under R.C. 6103.02(B) and R.C. 6117.01(C), the board can create a sanitary engineering department and employ a county sanitary engineer to facilitate the function of the sanitary facilities. The board is responsible for paying the county sanitary engineer’s salary and any authorized, necessary expenses of the sanitary engineering department.

If revenues are collected from the supplying of water or the operation of sanitary or drainage facilities, a board is statutorily required to establish in the county treasury a water fund, a sanitary fund and a drainage fund, respectively, for each county sewer district. See R.C. 6103.02(G); R.C. 6117.02(C); R.C. 6117.02(D). These sections of the revised code also expressly restrict how the board may use the monies in each of the funds. Monies contained in the sanitary and drainage funds, for example, may only be used for “the payment of the cost of the management, maintenance, and operation of the [sanitary and drainage facilities] of, or used or operated for, the district.” R.C. 6117.02(C), R.C. 6117.02(D). Furthermore, the board of county commissioners must then adopt a cost allocation plan for each district, and revenues from each type of facility must be kept separate and paid into each separate fund. Id.

In order to pay any expense with the monies contained in any of the three funds, the expense must be: (1) reasonable and necessary to the administration of the sewer district and (2) either a cost incurred by the district, the county sanitary engineer or sanitary engineering department; a federal or state grant program; or the general or other fund of the county for a purpose that is shared by the districts. R.C. 6103.03(H); R.C. 6117.02(E). Importantly, the attorney general’s office determined that the expenses of a county sanitary engineering department do include the compensation and benefits of the department’s employees, including the county sanitary engineer.

The attorney general determined that a board of county commissioners may establish a special fund under R.C. 5705.09(F) or R.C. 5705.12. However, based on the specific creation of the three separate funds under the statutes — a water fund (R.C. 6103.02(G)), a sanitary fund (R.C. 6117.02(C)) and a drainage fund (R.C. 6117.02(D)) — the attorney general determined that a county cannot deposit revenues of a county sewer district directly into a special fund, unless that fund is the county sewer district’s water, sanitary or drainage fund. In other words, all revenue collected for water, sanitation or drainage purposes must be deposited directly into their respective treasury funds.

However, once those revenues are properly deposited directly into the county sewer district’s water, sanitary or drainage funds, the monies may be transferred to another special fund created by the board of county commissioners, so long as those transfers meet the requirements of R.C. 5705.15 and R.C. 5705.16. At that point, such monies may be used to directly pay the expenses and salaries of a county sanitary engineering department, provided that the special fund is set up for that purpose.

Importantly, however, such collected revenues may not be used to pay expenses of another sewer district in the county. The county’s original question to the attorney general concerned situations when some county sewer districts did not collect sufficient revenues to pay their share of the county sanitary engineering department’s expenses. The county then subsequently supplemented those payments with revenues collected from other sewer districts within the county. The attorney general determined that this was improper under the plain language of the statutes and, instead, suggested that the board of county commissioners consolidate sewer districts or increase the rates charged in those districts to avoid shortfalls. In addition, if necessary, the board of county commissioners may appropriate money from the county’s general fund under R.C. 6117.01(C) to make up the difference.

This opinion has important implications for any county when implementing revenue-collecting systems for its sewer districts.

• A county is statutorily obligated to create a water fund, a sanitary fund and a drainage fund for each of its sewer districts;
• Revenues collected from the functioning of the sewer district must be placed directly into their appropriate funds;
• After that initial placement, those monies can be transferred to special funds created by the board of county commissioners for the purpose of paying the expenses and salaries of the county sanitary engineering department;
• Revenues collected from other sewer districts within the county cannot be used to cover for another sewer district’s shortfall;
• If counties are having difficulties collecting enough revenue from its sewer services to fund its sanitary engineering departments, the attorney general recommends consolidating sewer districts or increasing rates charged for such services, in order to ensure the revenues collected cover the district’s share of expenses.

If such unlawful revenue-sharing has occurred, it is unclear what steps should be taken to avoid potential liability. The attorney general opined that a board of county commissioners likely has the authority to transfer funds between county sewer districts to reimburse revenue to the district that previously overpaid, but any county that finds itself in such a situation should consult with the auditor of state to determine what reimbursement, if any, might be necessary.